Question 1

Real per capita gross domestic product (GDP) is defined as:  a. the market value of all final goods and services consumed in a country. b. the average number of goods produced in a country. c. the average level of income in a country. d. the median level of income in a country. e. the total level of income in a country.

Accepted Answer

c. the average level of income in a country.

Question 2

Residents of wealthy countries tend to have longer life expectancies because:  a. the residents of wealthier countries tend to work harder than those in poor countries. b. the government meets all health care needs in wealthy countries. c. higher per capita real gross domestic product (GDP) growth rates allow for more spending on health care. d. consumers in wealthy countries face lower health care costs. e. the residents of poor countries have no desire to consume health care.

Accepted Answer

c. higher per capita real gross domestic product (GDP) growth rates allow for more spending on health care.

Question 3

Average world income began to increase rapidly during:  a. the Enlightenment. b. the Dark Ages. c. the Second World War. d. the reign of the Jedi knights. e. the Industrial Revolution.

Accepted Answer

e. the Industrial Revolution.

Question 4

Average income in Western Europe in 1600 was roughly $1,400 per year, while in Latin America, it was less than half that. Which of the following best explains this difference in average income?  a. Western Europe had fewer resources than Latin America. b. Western Europe had never been invaded or colonized, whereas Latin America had. c. Western Europe had more advanced technology than Latin America. d. Western Europe had lower taxes than Latin America. e. Western Europe had a better climate than Latin America.

Accepted Answer

c. Western Europe had more advanced technology than Latin America.

Question 5

In 2007, per capita real gross domestic product (GDP) in Brazil was $9,893.92. By 2008, it had increased to $10,525.58. At what rate did Brazil\'s economy grow in that time?  a. 6.00% b. 5.38% c. 6.38% d. 7.27% e. 2.34%

Accepted Answer

c. 6.38%

Question 6

If you attempted to determine if the standard of living of a country has increased by looking only at changes in its nominal gross domestic product (GDP), what would you be missing? a. The fact that nominal GDP includes all economic activity, including sales of used goods and illegal goods b. The fact that nominal GDP only considers changes in the price level but ignores changes in population c. The fact that an increase in nominal GDP normally means that standards of living are falling, not rising d. The fact that, in the long run, nominal GDP is the best measure of overall economic growth e. The fact that an increase in nominal GDP does not necessarily mean that standards of living are rising, due to changes in prices and the population

Accepted Answer

e. The fact that an increase in nominal GDP does not necessarily mean that standards of living are rising, due to changes in prices and the population

Question 7

From 2006 to 2010, per capita real gross domestic product (GDP) in Croatia grew an average of 1.08% per year. At that rate, according to the Rule of 70, in roughly how many years will the Croatian economy double in size?  a. 65 years b. 29 years c. 69 years d. 51 years e. 34 years

Accepted Answer

a. 65 years

Question 8

An increase in ________________ would lead to an increase in long-run economic growth. a. consumer spending and borrowing b. government taxes and fees c. resources and technology d. imports and exports e. prices and interest rates

Accepted Answer

c. resources and technology

Question 9

The inputs used to produce goods and services are also known as: a. costs. b. resources. c. output. d. prices. e. institutions.

Accepted Answer

b. resources.

Question 10

A(n) _____________ in the amount of resources will tend to _____________ economic growth.  a. increase; increase b. increase; have no effect on c. decrease; have no effect on d. increase; decrease e. decrease; increase

Accepted Answer

a. increase; increase

Question 11

Which of the following would be classified as a natural resource?  a. obtaining a college degree b. a factory c. coal d. a loaf of bread e. wireless networking equipment

Accepted Answer

c. coal

Question 12

Lauren owns a bakery. She wants to increase her daily production of baked goods, so she knows she needs to acquire more resources. Which of the following actions would represent an increase in the physical capital resource at her bakery? a. moving into a larger space b. increasing employee training c. hiring more employees d. buying better-quality ingredients e. hiring an accountant to handle payroll

Accepted Answer

a. moving into a larger space

Question 13

A firm\'s human capital would increase with:  a. a decrease in the number of employees. b. new and improved equipment and machinery. c. a larger facility. d. on-the-job training. e. fewer managers per worker.

Accepted Answer

d. on-the-job training.

Question 14

Krista owns a hair salon. She wants to increase the number of clients she serves each month, and she wants to use a technological advance to do so. ______________ would represent a technological advance at her hair salon. a. More scissors, combs, and mirrors b. Better training for her staff c. Increasing the number of employees d. Installing a new hair dryer that can dry hair in half the time, with less damage to the hair e. A larger hair salon with more chairs

Accepted Answer

d. Installing a new hair dryer that can dry hair in half the time, with less damage to the hair

Question 15

In economics, technology is defined as:  a. the knowledge available for use in production. b. things like computers and wireless networks. c. advanced equipment and machinery. d. equally available for all firms. e. being constant and unchanging.

Accepted Answer

a. the knowledge available for use in production.

Question 16

In what way did Henry Ford\'s use of the assembly-line method of production represent an advance in technology in automobile manufacturing? a. It enabled workers to become experts in every aspect of automobile assembly. b. It allowed Ford to buy parts at a lower cost. c. It caused all other automobile manufacturers to go out of business. d. It prevented other firms from utilizing that same technology. e. It allowed workers to specialize on specific tasks and become more productive.

Accepted Answer

e. It allowed workers to specialize on specific tasks and become more productive.

Question 17

Between 2006 and 2010, per capita real gross domestic product (GDP) in China grew at an average rate of 10.62% per year. In contrast, its economy only grew by an average rate of 0.25% from 1961 to 1965. Which of the following factors would have contributed most to this rapid escalation in growth? a. rapid population growth b. the establishment of pro-growth institutions c. large increases in average prices d. dramatic reductions in tax rates e. restrictions on imports and exports

Accepted Answer

b. the establishment of pro-growth institutions

Question 18

Why do institutions such as private property rights promote economic growth? a. Private property rights guarantee that the economy is stable in the short run, which encourages investment. b. Private property rights are usually forced on a country, whereas collective ownership is voluntarily adopted. c. Private property rights create an incentive to maximize the value of one\'s property, which is not true when property is collectively owned. d. Private property rights guarantee that everyone will have equal amounts of property. e. Private property rights are not established by governments but by private individuals.

Accepted Answer

c. Private property rights create an incentive to maximize the value of one\'s property, which is not true when property is collectively owned.

Question 19

All countries have some resources and technology available to them. The ones that grow fastest are the ones that: a. hoard their resources and never use them. b. invade other countries to capture their resources. c. have the institutions in place that allow those resources to be fully exploited. d. allow other countries to extract their resources for payment. e. require that all resources are collectively owned.

Accepted Answer

c. have the institutions in place that allow those resources to be fully exploited.

Question 20

Which of the following is true? a. Economists formulate theory and then sometimes try to verify the theory with real-world observations. b. Real-world observations are used to formulate economic theory, but this is of little use to policymakers. c. Once an economic theory is developed, it is rarely tested against real-world observations. d. When a policymaker has an idea about how to advance economic growth, she will ask an economist to formulate a theory, and then this will be compared to real-world observations. e. Real-world observations motivate economists to formulate theories about how economic growth evolves, and these theories are then used and reevaluated as new data become available.

Accepted Answer

e. Real-world observations motivate economists to formulate theories about how economic growth evolves, and these theories are then used and reevaluated as new data become available.

Question 21

In equation form, the production function for a single firm can be expressed as: a. q = f(human capital, physical capital). b. q = f(price of output, price of inputs). c. q = f(labor, price of inputs). d. q = f(price of inputs, profit). e. q = f(production cost, profit).

Accepted Answer

a. q = f(human capital, physical capital).

Question 22

The relationship between the growth rate of real gross domestic product (GDP) and the growth rate of real investment is: a. positive. b. negative. c. unpredictable. d. nonexistent. e. positive at low levels of real GDP and then negative at higher levels of GDP.

Accepted Answer

a. positive.

Question 23

In the Solow growth model, human capital will increase if (choose the best answer): a. there are more workers. b. workers are better educated. c. there are more workers and/or existing workers become better educated and skilled. d. real wages increase. e. there is an increase in production.

Accepted Answer

c. there are more workers and/or existing workers become better educated and skilled.

Question 24

In a population, not all workers have a high school diploma. Suppose the size of the labor force increases but a smaller percentage of the labor force has a high school diploma. It is reasonable to expect that the larger labor force will _________ the human capital input and the smaller percentage of the labor force with a high school diploma will _________ the human capital input. a. decrease; increase b. decrease; decrease c. increase; decrease d. increase; have no effect on e. increase; increase

Accepted Answer

c. increase; decrease

Question 25

Consider a country that improves its educational system such that a greater percentage of workers become college educated. It is reasonable to expect: a. the production function will shift upward. b. the production function will shift downward. c. there will be an upward movement along the production function. d. there will be a downward movement along the production function. e. there will be no effect on the production function.

Accepted Answer

a. the production function will shift upward.

Question 26

The Solow model emphasizes: a. the development of institutions. b. capital and diminishing returns. c. the importance of skilled labor. d. technological change. e. cultural factors.

Accepted Answer

b. capital and diminishing returns.

Question 27

Diminishing marginal product is also known as: a. diminishing returns. b. net investment. c. depreciation. d. investment. e. the steady state.

Accepted Answer

a. diminishing returns.

Question 28

A key assumption of the Solow model is: a. increasing returns to labor and diminishing returns to capital. b. diminishing returns to capital only. c. diminishing marginal product of capital and labor. d. diminishing marginal product of capital and increasing marginal product of labor. e. constant marginal product of capital only.

Accepted Answer

b. diminishing returns to capital only.

Question 29

There are diminishing returns to: a. only human capital. b. only physical capital. c. only natural resources. d. only human capital and physical capital. e. human capital, physical capital, and natural resources.

Accepted Answer

e. human capital, physical capital, and natural resources.

Question 30

If an economy is in the steady state, then: a. net investment is zero. b. depreciation is zero. c. investment is zero. d. the marginal product of capital is zero. e. there are no diminishing returns.

Accepted Answer

a. net investment is zero.

Question 31

A firm has 100 computers, and each year 5 of them become obsolete and must be recycled. This firm is in a steady state if investment each year is equal to: a. 0. b. 5. c. 1. d. 100. e. 95.

Accepted Answer

b. 5

Question 32

In the economy, the level of capital will decrease if: a. the economy is not in a steady state. b. depreciation is zero. c. net investment is negative. d. net investment is less than investment. e. net investment is greater than investment.

Accepted Answer

c. net investment is negative.

Question 33

In the economy, the level of capital will remain the same if: a. net investment is zero. b. investment is zero. c. output is increasing. d. net investment is greater than investment. e. net investment is less than investment.

Accepted Answer

a. net investment is zero.

Question 34

According to the Solow growth model, rich nations are rich because: a. they have more skilled labor. b. they have more natural resources. c. they have more capital. d. they are more politically stable. e. their workers are paid higher real wages.

Accepted Answer

c. they have more capital.

Question 35

Since 1820, the growth rate of real gross domestic product (GDP) per capita in the United States has: a. increased. b. decreased. c. remained at zero. d. remained constant. e. not slowed down.

Accepted Answer

e. not slowed down.

Question 36

When the production function shifts upward, we can expect the marginal product of capital to: a. increase. b. decrease. c. remain constant. d. double in value. e. turn negative.

Accepted Answer

a. increase.

Question 37

What would cause an upward shift of the production function? a. an increase in capital b. an increase in investment c. an increase in output d. an increase in depreciation e. an advance in technology

Accepted Answer

e. an advance in technology

Question 38

Historical evidence supports which of the following claims? a. Aid from developed countries to less developed countries has not always resulted in sustained growth for the less developed countries. b. Only the less developed countries that have received aid from the wealthy countries have succeeded in achieving sustained growth. c. Sending financial resources to developing countries has helped them all achieve sustained growth. d. Building capital in the developing countries has helped them all achieve sustained growth. e. Developed countries should not send any more aid to less developed countries because the effort has never resulted in sustained growth.

Accepted Answer

a. Aid from developed countries to less developed countries has not always resulted in sustained growth for the less developed countries.

Question 39

The relationship between international aid and economic growth for less developed countries is: a. positive, in that more aid means more growth. b. negative, in that less aid means less growth. c. indeterminate, because very few countries have received international aid. d. positive when financial funds are sent to the less developed countries but negative when developed countries help build capital goods in these countries. e. nonexistent, because some countries have received aid but realized no growth, whereas others have grown but have received no aid.

Accepted Answer

e. nonexistent, because some countries have received aid but realized no growth, whereas others have grown but have received no aid.

Question 40

Which of the following is true about recessions in the United States? a. They are more common today than in the past. b. They are rarer today than in the past. c. They occur predictably about every two years. d. They occur predictably about every eight years. e. They are often caused by changes in government policy.

Accepted Answer

b. They are rarer today than in the past.

Question 41

Unemployment rises and real gross domestic product (GDP) growth slows during the: a. expansion phase of a business cycle. b. recession phase of a business cycle. c. entire business cycle. d. recovery phase of a business cycle. e. short-run phase of a business cycle.

Accepted Answer

b. recession phase of a business cycle.

Question 42

The aggregate demand curve slopes downward because: a. as price rises, consumers substitute cheaper goods for more expensive goods. b. all demand curves slope downward. c. a higher price level will increase purchasing power. d. a higher price level will increase exports. e. a higher price level reduces wealth.

Accepted Answer

e. a higher price level reduces wealth.

Question 43

If prices fall, then real wealth __________ and the quantity of aggregate demand __________. a. increases; increases b. increases; decreases c. decreases; decreases d. decreases; increases e. is unaffected; is unaffected

Accepted Answer

a. increases; increases

Question 44

When U.S. goods become more expensive relative to foreign goods, exports will __________ and imports will __________. a. decrease; decrease b. increase; increase c. increase; decrease d. decrease; increase e. decrease; be unaffected

Accepted Answer

d. decrease; increase

Question 45

You read in the paper that there has been a significant increase in the consumer confidence index. Having taken an economics class, you predict that spending in the economy will __________ and aggregate demand will __________. a. decrease; increase b. decrease; decrease c. increase; be unaffected d. increase; decrease e. increase; increase

Accepted Answer

e. increase; increase

Question 46

If people expect higher income in the future, then spending today __________ and aggregate demand __________. a. increases; is unaffected b. increases; increases c. increases; decreases d. decreases; decreases e. is unaffected; is unaffected

Accepted Answer

b. increases; increases

Question 47

When foreign income rises, U.S. aggregate: a. demand will shift to the right. b. supply will shift to the right. c. demand will shift to the left. d. supply will shift to the left. e. demand and aggregate supply will be unaffected.

Accepted Answer

a. demand will shift to the right.

Question 48

Which of the following is true? a. Long-run aggregate supply is independent of the price level. b. Short-run aggregate supply is independent of the price level. c. Long-run aggregate supply is positively related to the price level. d. Short-run aggregate supply is inversely related to the price level. e. Long-run aggregate supply is inversely related to the price level.

Accepted Answer

a. Long-run aggregate supply is independent of the price level.

Question 49

The long-run aggregate supply curve is: a. vertical because full employment output is independent of the price level. b. upward sloping because the economy grows over time. c. horizontal because full employment output is independent of the price level. d. upward sloping because as the price level rises, firms will increase output. e. downward sloping because rising prices reduce real wealth and spending.

Accepted Answer

a. vertical because full employment output is independent of the price level.

Question 50

New computer technologies can be expected to: a. increase long-run aggregate supply. b. increase the price level. c. increase the unemployment rate. d. decrease aggregate demand. e. decrease aggregate supply.

Accepted Answer

a. increase long-run aggregate supply.

Question 51

The relationship between sticky input prices and flexible output prices explains: a. the positive slope of the short-run aggregate supply curve. b. the vertical slope of the long-run aggregate supply curve. c. the negative slope of the short-run aggregate supply curve. d. the negative slope of the aggregate demand curve. e. the positive slope of both the short-run and long-run aggregate supply curves.

Accepted Answer

a. the positive slope of the short-run aggregate supply curve.

Question 52

When the general price level rises and firms decide not to change their prices in the short run, this can be attributed to: a. menu costs. b. legally binding contracts. c. inflexible input prices. d. money illusion. e. a decline in revenues.

Accepted Answer

a. menu costs

Question 53

Suppose an economy has a law that requires all wages to be adjusted quarterly to reflect changes in the general price level. This means wages either increase or decrease depending on the percent change in the general price level. In this economy: a. there are recessions but no expansions. b. output is always at the full employment level. c. business cycles are less severe. d. the price level will remain fixed. e. workers are worse off in real terms than if wages were not indexed.

Accepted Answer

c. business cycles are less severe.

Question 54

An increase in expected future prices causes: a. an increase in short-run aggregate supply. b. a decrease in short-run aggregate supply. c. a supply shock. d. an upward movement along the aggregate supply curve. e. menu costs.

Accepted Answer

b. a decrease in short-run aggregate supply.

Question 55

An increase in short-run aggregate supply immediately leads to: a. an increase in real wealth and a shift of the aggregate demand curve. b. an increase in real wealth and a movement along the aggregate demand curve. c. a shift of the aggregate demand curve caused by menu costs. d. a shift of the aggregate demand curve caused by money illusion. e. an increase in money illusion and a movement along the aggregate demand curve.

Accepted Answer

b. an increase in real wealth and a movement along the aggregate demand curve.

Question 56

Suppose that many countries in Europe sink into recession. In the short run, output in the United States will __________ and the price level will __________. a. increase; increase b. decrease; decrease c. remain unaffected; remain unaffected d. decrease; remain unaffected e. increase; remain unaffected

Accepted Answer

b. decrease; decrease

Question 57

Suppose the government permanently reduces spending in an effort to reduce the budget deficit. In the new long-run equilibrium, output will __________ and the price level will __________. a. decrease; decrease b. remain unchanged; decrease c. remain unchanged; increase d. decrease; remain unchanged e. increase; decrease

Accepted Answer

b. remain unchanged; decrease

Question 58

If the economy is in a recession caused by lower aggregate demand, then in the absence of policy action, the price level will __________, output will __________, and employment will __________ in the long run. a. increase; remain unchanged; increase b. remain unchanged; increase; increase c. decrease; increase; increase d. decrease; decrease; increase e. increase; increase; increase

Accepted Answer

c. decrease; increase; increase

Question 59

The Great Recession began in: a. December 2009. b. June 2009. c. August 1929. d. December 2007. e. January 1930.

Accepted Answer

d. December 2007.

Question 60

The Great Recession lasted for: a. 12 months. b. 18 months. c. 32 months. d. 44 months. e. the entire reign of Nero Claudius Caesar Augustus Germanicus.

Accepted Answer

b. 18 months.

Question 61

An institutional breakdown in U.S. financial markets would tend to cause: a. aggregate demand to increase. b. long-run aggregate supply to decrease. c. short-run aggregate supply to increase. d. long-run aggregate supply to increase. e. aggregate demand to decrease.

Accepted Answer

b. long-run aggregate supply to decrease.

Question 62

The Great Recession is characterized by a decrease in aggregate demand. __________ would have caused such a decrease. a. A decrease in consumer sentiment b. A decrease in income tax rates c. An increase in international trade d. An increase in expected income e. An increase in immigration to the United States

Accepted Answer

a. A decrease in consumer sentiment

Question 63

When stock prices declined during the Great Recession, it caused aggregate demand to decrease because: a. households became more optimistic and increased consumer spending. b. the government raised taxes and decreased spending. c. firms\' net worth decreased, leading to an increase in investment spending. d. household wealth decreased, leading to a decline in consumer spending. e. the government refused to allow the money supply to increase.

Accepted Answer

d. household wealth decreased, leading to a decline in consumer spending.

Question 64

A stock market crash in __________ is generally viewed as the beginning of the Great Depression. a. December 2007 b. March 1933 c. June 2009 d. October 1929 e. April 1945

Accepted Answer

d. October 1929

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